Why Hollywood Losses Will Continue if This Paradigm Shift Is Missed

Disruption is taking place across multiple industries simultaneously, and a significant part of the entertainment sector is no exception. Although the Writers’ Strike is over and Actors’ union works to resume talks with the Hollywood studios, an additional shockwave has now contributed to the chaos. Candle Media, backed by ten-figure funding from Blackstone which bills self as the world’s largest alternative asset manager, recently reported that its profits fell short of it’s projections by 50%.  

Helmed by two ex-Walt Disney executives, Candle Media talked a good game about becoming the next massive entertainment company. Candle CEOs poached a number of executives from United Talent Agency and was poised for the coveted hockey stick growth of a unicorn. Instead, the reverse seems to be occurring due in large part to the fact that the company paid far too much as it tried to fast-track and acquire companies such as Oscar-winning Reese Witherspoon’s Hello Sunshine for a whopping $900 million.  

Blackstone is far from the only the private equity gamble on Hollywood, by the way. Indeed, PE investment in this arena has become a bit of trend in the last couple of years with now only silence from such splashy announcements from Kim Kardashian and a former Carlyle Group partner to form SKKY Partners to the Carlyle Group itself announcing that it was pulling back a bit from the media/entertainment sector. 

Much of the shift has been blamed on the strikes, but there are many more powerful factors at play that most executives in the space are completely missing. A new paradigm that is here, and those who leverage it will become the new titans of industry.

The true play is to create a fusion of traditional storytelling with emerging technology integration and ancillary concepts. Quite simply, traditional entertainment and production companies that do not contain a deep emerging media component will continue to suffer economic loss as Candle Media. Gone are the days of vertical thinking, star chasing and standard entertainment projects. The new frontier is about horizontal synthesis of traditional storytelling methods fused creative and compelling applications of AI, 5G, digital currency, Web3 and AR/3D/Immersive. Indeed, the actual future of storytelling is about creating different levels of experience leveraging such technology, and synthesis should be the new buzzword around any entertainment boardroom, especially if a brand is to have any hope of connecting with Gen Z and junior Millennials. 

Why?

In order to connect with this audience, a company needs to be one step ahead of them to be even remotely interesting. This demographic also values participation and community - both on and off-line - far more than previous generations. Regular films and TV just don’t cut it anymore no matter what celeb is in it or producing it. Gen Z and many Millennials are watching multiple screens simultaneously while texting with friends while inside of communities on Discord while maybe even playing a 3D game. They are looking to be wowed and have these experiences deepened and amplified with a new synthesis of story, notables, and what’s next in tech. Picture an AI-driven platform with a Web3 community around it that has immersive components in a gaming offshoot complete with 3D advertisements and rev share.  Too many of these PE charged deals are simply backing the same old thing.  This is simply not innovative, and innovation is where the dollars lie. If executives are not strategically planning in this manner, they have already lost the game.

While the business goal is always to make a meaningful profit, this should be accomplished by creating unique, original content, not solely just acquiring it, and owning meaningful tech offerings that compliment them and create a synthetic harmony of experience.

Indeed, “The Hollywood Reporter" recently published a piece containing 5-crises confronting post-strike Hollywood. The trade noted issues with streaming fatigue, lack of theatrical attendance, and others, but they overlooked the deep need for new concepts that offer an approach of synthesis with emerging technology. The observation that this piece got right, however, was that that the Hollywood model is built on the idea of a “captive” audience that simply no longer exists. The good news is, the audiences are still on screens but because it is deeply fragmented, executives need to become even more nimble. There is a deep need to get out of bubble, create labs, and start thinking more like tech companies or continue to fall short of projections and risk loss. 

This is important because the entertainment industry is projected to be worth $2.78 trillion by 2027. Much of that will be driven by habits and preferences from Gen Z and Millennials. Indeed, Gen Z and Millennials are spending up to 39% of their discretionary income on entertainment. But here’s where things get interesting. Watching TV/movies is actually 5th on list of entertainment activities in a recently survey from Deloitte. Kevin Westcott, vice chairman at Deloitte and U.S. technology, media and telecom leader said in a “Variety” article on the findings, “The youngest generation is looking for video games, music and other forms of entertainment” ahead of television and movies. If you’re a traditional media company, you’re going have to offer a broader range of entertainment than just movies and TV shows.” Thus, media company earnings will go to those who create new mindsets that approach the arena with one part story, one part emerging tech. What is needed now is the partnership of savvy, new entrants with old school pockets to create the next era.  

Keith Abraham professional speaker, author, and educator says that the main way a company can obtain a competitive advantage when confronted with new hurdles is to think in moon shots. “So many companies are looking to improve just a bit as opposed to being bold in their thinking. During turbulent times executives need to think about they can become the gurus in their industry and do something that no one else in the industry is doing,” explains Alexander. “A key book that demonstrates this approach is called “10x Is Better Than 2x” by Dan Sullivan and Dr. Benjamin Hardy. This is the approach Lexus took when it decided to create an entirely new space for a luxury car. The same thinking can be applied to the entertainment industry.”  

Indeed, these are a few key questions senior executives responsible for returns on investment in the entertainment industry should be asking themselves and their teams now: 

1. How are the teams, market research, partners, and insights organized across multiple disconnected departments?
2. What resources are is the company relying upon to vet emerging technology developments and partnerships?
3. How are is the company testing its emerging tech strategy against the larger cultural narratives and fast-changing norms here & abroad?

Bonus: How is the above integrated with tapping into Gen Z audiences of color since they out-index in media consumption and hip hop defines the coolness in American culture? 

There is an urgency to grasp the above and more in order to seize great market share. The task at hand it to expertly blend the old guard with the new guard to create innovation in the market that provides longevity. 

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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